KiwiSaver must focus on long-term benefits

Over the past few years, investors have enjoyed a period of historically low volatility in financial markets, coupled with strong investment returns.

That said, over the past year, there have been a number of events that have caused increased market uncertainty, heightened volatility and falling share prices.

During these periods, many New Zealanders have nervously monitored the value of their investment portfolio or KiwiSaver fund.

While it may be unsettling to know that the value of your investments is falling, it is important to remember that short-term market volatility has always been a normal part of investment.

Slowdown fears

Since the start of 2016, on separate occasions, financial markets have been spooked by fears of a slowdown in the Chinese economy, uncertainty about the future path of US interest rates, plunging oil prices, terrorist attacks, and, of course, the unexpected decision of UK voters to exit the European Union (known as Brexit).

Financial market participants tend to react negatively to such events, moving money from higher risk investments, such as shares, to safer investments, such as government bonds.

While these events have been uncomfortable in the short-term, investors who maintain their investment strategy tend to be rewarded as the markets recover, while those who change their investment approach tend to lock in the losses.

We believe that the recent periods of volatility in markets do not have the hallmarks of another Global Financial Crisis (GFC). For instance, the global banking system is in a much stronger position now than it was before the GFC, with many having built up large reserves to help them ride out periods of volatility like this.

Increasing volatility

What these periods of increased volatility means for investors and KiwiSaver members is that, from time to time, they may expect to see sharp changes in the value of their investments.

KiwiSaver funds that invest mainly in ‘higher-risk’ growth investments, such as shares, will be more susceptible to uncertain events than those that invest mainly in ‘lower-risk’ income assets, such as bonds and cash.

KiwiSaver funds are well-diversified and are professionally managed by investment managers who have been selected following a thorough due diligence process.

We offer a range of funds that allows investors to select their level of risk.

Each of these funds invests across a range of different asset classes.

Focused approach

The message I like to stress during periods of market volatility and significant falls is to stay focused on the long-term benefits of KiwiSaver and your long term savings plan. Take a deep breath, do not panic and keep your eyes on the horizon.

Yes, there has been increased volatility and uncertainty in many markets globally, but it’s important to remember that markets typically go through these short-term cycles and it is critical that we don’t overreact during the down periods.

This article is solely for information purposes and is not personalised financial advice. We recommend that you seek advice specific to your circumstances from a financial adviser before making any financial decision. None of BNZ Investment Services Limited, Bank of New Zealand or any other person accept any liability for any loss or damage arising out of the use of, or reliance on, any information in the above article.

BNZ is the Title Sponsor and Sponsor of the ‘Supreme Business of the Year’ and ‘Best Large Business’ Categories of the Ninth Annual Indian Newslink Indian Business Awards 2016. BNZ was also the Title Sponsor of the Sixth Indian Newslink Sir Anand Satyanand Lecture held at Pullman Hotel Auckland on Monday, July 25, 2016.